Proofpoint adds on hedge as shares fade; HCI Group adds on debut; secondary market quiet

By Rebecca Melvin

New York, Dec. 6 - Proofpoint Inc.'s newly priced 1.25% convertibles traded higher on an outright and dollar-neutral, or hedged, basis on their debut in secondary market action on Friday after the Sunnyvale, Calif.-based security-services vendor priced an upsized $175 million of five-year bonds at the midpoint of coupon talk and rich end of premium talk.

The Proofpoint 1.25% bonds were better by about 1.5 points dollar neutral even though they moved lower in line with lower shares by late morning, a syndicate source said.

The Proofpoint convertible was last at 99.25 bid, 99.75 offered, with the shares down more than 4%, moving on about a 60% delta, a New York-based trader said Friday afternoon.

Earlier, the bonds had been 100.5 bid, 101 offered when the shares were down about 3% at $28.54. At their peak, the bonds traded in the mid to high 101s.

Also marking a debut in the convertibles market was HCI Group Inc.'s new deal. The HCI 3.875% convertibles were seen at 101 bid, 102 offered versus a share price of $48.05, which was the stock price at which the bond priced, making those better by about 1.5 points dollar neutral as well.

The Tampa, Fla.-based property and casualty insurer priced $100 million of the five-year bonds at the cheap end of 3.375% to 3.875% coupon talk and at the rich end of 30% to 35% premium talk.

Otherwise, the secondary market was fairly quiet, and fairly resilient, one trader said.

"Traders might be fatigued from all the activity," a New York-based trader said. "But overall, more is going away than is pricing; there is still decent demand."

This past week about $1.87 billion in base deals priced in nine deals by eight issuers. Several of the deals were upsized, and/or came at the rich end of talked terms.

The only one that came at negative pricing was RAIT Financial Trust's $125 million of 20-year 4% convertible senior notes, which priced at a discount to par of 99, the trader pointed out.

Most of the deals that debuted in the market on Thursday performed well, but on Friday they were looking a little lower outright in line with their shares, including GT Advanced Technologies Inc.'s 3% convertibles, Endologix Inc.'s 2.25% convertibles, SouFun Holdings Ltd.'s 2% convertibles and American Realty Capital Properties Inc.'s 3.75% convertibles.

The equities markets overall were stronger, however, cheered by a better-than-expected jobs report. The U.S. Labor Department said U.S. employers added 203,000 jobs for November, which was better than the 180,000 jobs that economist had expected. The unemployment rate fell to 7% from 7.3% in October.

The Dow Jones industrial average gained 198.69 points, or 1.3%, to 16,020.20; the S&P 500 stock index climbed 20.06 points, or 1.1%, to 1,805.09; and the Nasdaq stock market rose 29.36 points, or 0.7%, to 4,062.52.

Proofpoint better on hedge

Proofpoint's 1.25% convertibles due 2018 were last at 99.25 bid, 99.75 offered with the underlying shares down more than 4% at about $28.30.

Shares ended near their lows of the session at $28.03, which was down $1.42, or 4.8%.

They were better by about 1.5 points dollar neutral even though they moved lower in line with lower shares by late morning, a syndicate source said.

Earlier the bonds had been 100.5 bid, 101 offered when the shares were down about 3% at $28.54. Earlier the bonds traded in the mid to high 101s.

"The stock is a little lower now, so they are 100.5 to 101," a syndicate source said at late morning.

Proofpoint priced an upsized $175 million of five-year convertible bonds at par after the market close on Thursday to yield 1.25% with an initial conversion premium of 32.5%. The Rule 144A deal was initially seen at $150 million in size.

Joint bookrunners were Credit Suisse Securities (USA) LLC and Deutsche Bank Securities Inc.

The notes are non-callable until Dec. 20, 2016 and then provisionally callable if shares rise to 130% of the conversion price for a specified period. There is standard dividend and takeover protection.

There is contingent conversion and net share settlement.

Proceeds are expected to be used for general corporate purposes, including potential acquisitions and strategic transactions.

Proofpoint is a security-as-a-service vendor based in Sunnyvale, Calif.

HCI adds dollar neutral

HCI Group's 3.875% convertibles were seen at 101 bid, 102 offered versus a share price of $48.05 on Friday.

That was better both outright and dollar neutral by 1.5 points.

HCI Group shares ended higher by 35 cents, or 0.7%, at $48.40.

HCI priced $100 million of five-year convertibles at par after the market close Thursday to yield 3.875% with an initial conversion premium of 30%.

The Rule 144A deal priced at the cheap end of talk.

JMP Securities LLC as the bookrunning manager.

The bonds mature March 15, 2019 and are non-callable for life with no puts.

The securities are contingently convertible at 98% if shares exceed 130% of the conversion price, and they have net share settlement. There is takeover protection and dividend protection for any dividends paid above $0.275 per quarter.

Up to $30 million of the proceeds will be used to repurchase shares of common stock under the terms of a prepaid forward transaction. Remaining proceeds are for general corporate purposes, including, but not limited to, working capital.

Concurrently with the pricing of the notes, HCI entered into the prepaid forward transaction with Deutsche Bank AG, London Branch. The repurchased shares are to be delivered over a settlement period in 2019. The prepaid forward is subject to early settlement, in whole or in part, at any time prior to the final settlement date at the option of the forward counterparty.

Tampa, Fla.-based HCI is a property and casualty insurer.

Mentioned in this article:

American Realty Capital Properties Inc. Nasdaq: ARCP

Endologix Inc. Nasdaq: ELGX

GT Advanced Technologies Inc. Nasdaq: GTAT

HCI Group Inc. NYSE: HCI

Proofpoint Inc. Nasdaq: PFPT

RAIT Financial Trust NYSE: RAS

SouFun Holdings Ltd. Nasdaq: SFUN

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